Czech Republic Prime Minister Sobotka speaks during the news conference at the Chancellery in Berlin

PRAGUE (Reuters) - Czech Prime Minister Bohuslav Sobotka on Thursday called on his powerful finance minister Andrej Babis to explain his past use of tax-free bonds and other business activities, as an escalating row rattles the government before elections.

Billionaire Babis is the leader of the centrist ANO junior coalition party, which now holds a commanding lead over Sobotka's Social Democrats in opinion polls.

Sobotka stopped short of calling for Babis's dismissal but speculation has risen that he may try to sack him before elections in October, which could trigger the government's collapse.

On Thursday, Sobotka said he wanted Babis to explain the use of the bonds and answer other questions over his business by the end of April, and that he would then decide how to proceed.

Asked later at a news conference whether the government could go on in the current atmosphere, Babis declined to comment, saying only that it has worked well so far.

Sobotka and Babis took power together in 2014 after a decade-long period in which a string of governments collapsed early and have governed relatively smoothly together. But they have clashed over taxes, spending and police reform.

Babis, who controlled vast business conglomerate Agrofert before shifting assets to a trust fund this year, has fought off accusations of conflicts of interest since joining the cabinet.

The latest attacks come over his past use of bonds allowed under law but which companies could reduce their tax base by issuing. The bond holders -- often the firms' owner -- paid no tax on interest received.

Tax analysts have said some companies used the bonds as a way to pay out tax-free profits to owners.

Babis has denied wrongdoing and said he would answer lawmakers' questions by Friday. Earlier on Twitter he posted a photo of him standing next to a stack of cardboard boxes in his office saying "he was ready" if Sobotka aimed to fire him.

(Reporting by Robert Muller; Writing by Jason Hovet; Editing by Catherine Evans)